Abstract
Purpose of the study: The present study investigates the influence of selected macroeconomic variables in terms of international crude oil price, exchange rates, domestic gold price, real interest rates and wholesale price index on stock market indices (sensex and nifty) of India. Background: Macroeconomic variables directly or indirectly affect the stock prices because it influences strongly the stock returns by affecting the stock prices, which supports the existance of a long-run relationship between the macroeconomic variables and stock prices. Methodology: This study is based on time series monthly data collected from Reserve Bank of India database; BSE and NSE database, investing.com and yahoo, finance database for the period July 1997 to July 2015 with the application of financial econometrics. Results: The empirical results reveal that sensex and nifty reactions to shocks on crude oil prices, exchanges rates, real interest rates and whole prices indices were positive while a negative shock from sensex and nifty to real interest was noticed.
Highlights
The hot and flowing questions in the stock market study are whether the macroeconomic variables unswervingly or not directly influence the stock prices
The results of the correlation statistics disclosed that crude oil price, gold price, exchange rates and wholesale price index are positively related with sensex and nifty but real interest rates have exposed negative correlation with sensex and nifty which is significant at 1 per cent level
The effect of selected macroeconomic variables shocks on the stock market of India would be survived if sensex and nifty are significantly associated with the selected macroeconomic variables during the study period
Summary
The hot and flowing questions in the stock market study are whether the macroeconomic variables unswervingly or not directly influence the stock prices. The other school of consideration speaks out that macroeconomic variables persuade sturdily the stock returns by influencing stock prices In this context, the Arbitrage Pricing Theory (Ross, 1976, Chen et al, 1986) supports the existance of a long-run relationship between the macroeconomic variables and stock prices. The Arbitrage Pricing Theory (Ross, 1976, Chen et al, 1986) supports the existance of a long-run relationship between the macroeconomic variables and stock prices According to this theory, the investors can predict the future stock prices by analying the trends in macroeconomic variables and with the help of such prediction they can earn abnormal profits. The foreign institutional as well as individual investors have got an easy access to the Indian stock market In this milieu, this study endeavours to investigate the association between the macroeconomic variables and and stock prices during the period July 1997 to July 2015
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